Linux for Suits - Greater Goods

How classical economics fails to comprehend free and open-source software development. And, how it's making a whole new world that's bigger and better for everybody.

At the beach last summer, I caught up with my cousin, Charles Crissman,
PhD—a veteran scientist, agricultural economist and Deputy Director
General for Research at CIP (better known as the Potato Institute), a
large international development organization headquartered in Peru. What
surprised and gratified me most was learning from Charles that the
results of CIP's research and development are open and accessible. They
don't want to see their work benefit one government, or one company, to
the exclusion of anybody else, no matter who pays for the work.
Agriculturally speaking, they are not in the business of building silos
or walled gardens. Instead, they are in the business of helping nature.
Literally.

In response, I explained how free software and open-source developers
aren't just helping nature, but making it. Their work is creating the
core, mantle and crust of a new digital world of code growing within and
alongside the physical one. I added that this digital world's geologies
are created on NEA principles: Nobody owns it, Everybody can use it, and
Anybody can improve it.

“Yes”, he said. “You're talking about pubic
goods.” The term public
goods intrigued me. But there was no connectivity at the beach, and we
really weren't there to discuss economics anyway. So, I did that after I
got home.

Public goods are non-rivalrous, it turns out. In other words, they are
not scarce. Consuming any of them does not reduce the sum available to
others. Wikipedia adds:

The term public good is often used to refer to goods that are
non-excludable as well as non-rival. This means it is not possible
to exclude individuals from the good's consumption. Fresh air may be
considered a public good as it is not generally possible to prevent
people from breathing it. However, technically speaking, such goods
should be called pure public goods. These are highly theoretical
definitions: in the real world there may be no such thing as an
absolutely non-rival or non-excludable good, but economists think
that some goods in the real world approximate closely enough for
these concepts to be meaningful.

Wikipedia also provides a handy way to distinguish public goods from
others that differ in excludability or rivalness (Table 1).

public good: e.g., law enforcement, national defense, fire
fighting, public roads, street lighting

Wikipedia says, “information goods, such as software development,
authorship, and invention” fall in the public
good category. Yet it
seems that the purpose of free and open-source development is to produce
a common pool resource. As Craig Burton has often observed, the idea
is to create common infrastructural building material that supports
whole industries, rather than just one player in that industry. We do
this by making goods that become abundant by being both open and in the
public domain.

What we look for is a “because effect”, which is what you get when more
money is made because of something than
with something. For example,
more money is made because of the Internet than
with the Internet.
Or, in geological terms, more money is made on top of it than inside of
it—by many orders of magnitude. Take all the money cable and phone
companies make by selling connectivity and transport, then compare that
with all the money made on top of that connectivity and
transport—that is, because of it. The ratio of the latter to the former is
absurdly large.

Yet the Net's carriers (at least in the US) still believe the only
Internet business worthy of the label is selling the Net itself. When I
talk with folks who work for the carriers, they can barely imagine
benefits to their incumbency other than making money every way they can
with the Net rather than because of it. Worse, they don't want to see
their users doing anything other than consuming services. To them, the
Net is nothing more than a pipe between producers and consumers, and
their job is to make money by delivering stuff from one to the other.
Why is that? Is it just that they are stuck in their ways? Or is there
more to the problem than that?

When I talk with economically savvy folks about the goals and effects of
free and open-source software—or of the Net itself—I often hear the
terms “external”, “externality” and
“externalities”. It is not meant in
a dismissive way, but rather a positive one. Abundant free software
production and use might be seen as a network
externality, resulting
from the network effects caused by cost-free goods that are easily
obtained and used—which is fine. But there is a cost to this
perspective. As Wikipedia puts it (en.wikipedia.org/wiki/Externalities):

An externality is a side effect from one activity that has
consequences for another activity but is not reflected in market
prices. Externalities can be either positive, when an external
benefit is generated, or negative, when an external cost is
generated from a market transaction.

An externality occurs when a decision causes costs or benefits to
stakeholders other than the person making the decision, often,
though not necessarily, from the use of common goods (for example, a
decision that results in pollution of the atmosphere would involve
an externality). In other words, the decision-maker does not bear
all of the costs or reap all of the gains from his or her action.

Note the perspective. The view of what's external and what's internal
depends on where you stand. And, classical economics stands with
transactions between sellers and buyers. The diagram shown in Figure 1 from the same
Wikipedia page (on externality) makes the point of view clear.

Figure 1. Externality

Most of us view markets, and economic activity generally, through the
prism of transaction. Or, to retain the triangular metaphor, from the
top of the pyramid—that is, from the side of the firm, the seller, the
producer, the few who sell to the many.

This explains to me why, countless times on the Gillmor Gang podcast, I
go silent or into a rant against the “vendor sports” commentary by other
Gang members. They see my main area of concern—free and open-source
development and DIY activity on the customer's or consumer's side—as
external to the work of large producers.

What most of us don't see is that most free and open-source software
development isn't in a business at all. It's busy making the stuff that
makes the world that everybody lives in. It is pro-business the same way
the core of the Earth or the Pacific Ocean is pro-business. Its tides
lift all boats, but it is not especially concerned with what any of those
boats are up to.

Still, so far we've concerned ourselves only with a few of the many
goods economists talk about. Other adjectives modifying goods include
durable, non-durable,
intermediate, capital,
consumer,
experience, merit,
complement, substitute,
scarce,
positional and free.

Of all those, the one that best applies to what we're up to is
free.
Wikipedia explains:

The free good is a term used in economics to describe a good that
is not scarce. A free good is available in as great a quantity as
desired with zero opportunity cost to society. A good that is made
available at zero price is not necessarily a free good. For example,
a shop might give away its stock in its promotion, but producing
these goods would still have required the use of scarce resources,
so this would not be a free good in an economic sense.

There are three main types of free goods:

1) Resources that are so abundant in nature that there is enough
for everyone to have as much as he or she wants. An example of this
is the air that we breathe.

2) Resources that are jointly produced. Here the free good is
produced as a by-product of something more valuable. Waste
products from factories and homes, such as discarded
packaging, are often free goods (see also dumpster diving).

3) Ideas and works that are reproducible at zero cost, or almost
zero cost. For example, if someone invents a new device, many
people could copy this invention, with no danger of this
“resource” running out. Other examples include computer
programs and Web pages.

Not surprisingly, this is consistent with the Free Software Definition
(www.gnu.org/philosophy/free-sw.html) and Richard M. Stallman's
original distinction between free speech (a free good) and free beer (a
private good, given away).

Public infrastructure is a because effect of free software, which is
created down at the level of nature—the level where we make the
digital world. That level is nicely positioned by the Long Now
Foundation in the diagram shown in Figure 2.

Figure 2. Nature is the level where we make the digital world.

Although this diagram was created to show differences in the speed of
change in civilization, it also shows dependencies. Culture depends on
nature. Governance depends on culture and nature. Infrastructure depends
on all three.

The problem with classical economics is that it centers its concerns at
the commerce level, and specifically around transactions. More is
involved than just transactions, and a lot of it happens down at these
other layers.

Common, public and free goods, whether or not they are produced by
commercial activity, are external to it. But, significantly, they are
external below, on the supportive side. And you can't completely
understand the virtues or natures of those lower-level goods in
commercial terms, economic or otherwise—just as the science of
mechanics cannot explain physics or chemistry, even as it relies on them.

From the perspective of commerce, it is hard (maybe impossible) to
comprehend the supportive (and not merely the external) purposes of free
and open-source software—or why they are so deeply supportive of
economic activity and value creation. It is hard to see how, by their
nature, free and open-source software provide deep and supportive
culture, governance and infrastructure for all kinds of commercial
activity. Yet this is how, at the deepest level, we are making the
digital world.

The big brain-twister is, it only gets larger. That's because, unlike
the physical world—with its fixed dimensions and its portfolio of
building materials assembled from the periodic table of elements—the
digital world can be improved by anybody ready and able to contribute
useful code.

That code isn't just in the form of programming, either. It's in the
form of text, music, video and other arts that contribute to common
understanding. Here is where we are only beginning to develop the
culture and governance that will support new social infrastructures,
including those of government and business.

Wikipedia is a perfect example. I'll be curious to see how the entries
on economics that served as sources for this column will change as
readers of Linux Journal (and other instruments of understanding) make
corrections and improvements.

In the old pre-digital world, about all we could do was consume and
complain. Now we can produce and construct. And that makes a world of
difference.

Doc Searls is Senior Editor of Linux Journal. He is also a Visiting
Scholar at the University of California at Santa Barbara and a Fellow
with the Berkman Center for Internet and Society at Harvard University.